OUTLOOK

How end-to-end sustainable systems drive business value

Plenty of companies have taken steps toward becoming more sustainable, but none has turned that progress into truly transformational change.

Introduction

As anyone who’s ever used a compass knows, mistaking “magnetic north” for “true north” can put you alarmingly off course, very quickly.

Yet for many companies striving to become more sustainable, navigating via magnetic north—making incremental moves toward cleaner, greener, more socially responsible business—seems to be the default setting for their journey. That may well be better than business as usual. But it’s by no means enough.

Indeed, there’s a yawning gap between what science is telling us we need to do to ensure sustainability for people, planet and profits—an orientation we call True North—and what most companies consider to be progress. In fact, by almost every objective measure of sustainability, most industries and companies are already headed in the wrong direction. Perhaps even more worrisome, many are not even aware of the True North orientation and, equally important, that there is money to be made by embedding this approach to sustainability in their business model.

The stakes couldn’t be higher. With one-fifth more carbon in the atmosphere than there was in 2000 and global emissions still rising, year on year, the United Nations Environment Programme warns of catastrophic consequences for the world. Scientists believe that could include floods, droughts and famine. And the fallout from these increasingly frequent environmental disasters—measured in terms of food supply and poverty—can only further destabilize the global economy.

The World Wildlife Federation’s Living Planet Index shows that global biodiversity declined by 28 percent between 1970 and 2008; the decline rises to 61 percent in the tropical regions that house our most species-rich habitats. Moreover, in a globalized economy, sustainability is as much about sustainable social and economic development as it is about the environment. Yet poverty and inequality persist, and are even worsening.

In this interview, author Peter Lacy explains how companies can create advantage through sustainability.

Holistic, inclusive, robust

It isn’t that the world’s businesses are collectively ignoring sustainability. Many companies now routinely report their CO2 emissions, for example, and monitor progress toward reducing them. Many also tell stakeholders about the environmental and social impact of their products, and incorporate sustainability metrics into discussions with investors.

When Accenture and the United Nations Global Compact on sustainable business practices recently polled chief executives from about 800 companies across nearly 100 countries and more than 25 industries, almost all of them (93 percent globally and 98 percent in Asia Pacific) told us that sustainability is “important” or “very important” to their future business success. Additionally, more than 70 percent are measuring the impact of their activities on such sustainability outcomes as carbon emissions, water usage and even the health and economic development of local populations. Sixty percent are training managers to integrate sustainability into both strategy and operations.

These efforts, however, just aren’t achieving sufficient scale fast enough to make a real difference. When, for example, Boston-based Ceres, a nonprofit coalition of investors, companies and public interest groups, recently examined how swiftly 600 US companies were adopting its code of environmental conduct for safe and sustainable resource use, few had made more than minimal progress.

When viewed through the lens of individual industries, the record looks less impressive still. Take the transport industry, which produces some 15 percent of global greenhouse gas emissions. Despite recent innovations in efficiency across practically all modes of transport, global CO2 emissions from transport soared 45 percent between 1990 (the base year for UN negotiations on climate change) and 2007, and are projected to continue to increase by 40 percent by 2030.

The plain fact is that too many companies are still focused on celebrating marginal improvements—and fail to recognize that real progress requires much more radical action. Companies operating out of low-carbon offices or manufacturing facilities might justifiably claim to be making progress toward becoming sustainable. But if they remain part of a wider network of consumers, suppliers and infrastructure that continues to degrade the environment, they are not creating the innovative, sustainable systems—holistic, inclusive and robust—that would make a real difference.

As the deterioration of the global environment continues to accelerate, there’s an urgent need to correct this compass error, and challenge the assumption that we are making meaningful progress toward a sustainable economy.

RESISTING CHANGE

The continuing preference for magnetic north rather than True North is to some extent understandable, of course. After all, CEOs have businesses to run, and prioritizing radical systemic change—the essence of the True North path—especially if it threatens to disrupt daily operations, may look like a bad idea, or at least one for the back burner.

Sorting out the worst of the fallout from the Great Recession may constitute a far more urgent priority for many companies, especially in Europe and North America, where most of the damage has been done. And in emerging markets, too, driving economic growth to achieve competitive advantage often trumps sustainability considerations.

There is a widespread tendency to view small-scale success as an end in itself-what we call a "pilot paralysis."

Like mariners navigating via magnetic north, many individual companies are making progress on their own journeys towards sustainability. But are we collectively on the right track? To avoid a steady decline in momentum, businesses must set a sustainability course for Truth North by closing two key gaps: the execution gap, between ambition and achievement; and the transformation gap, between the best-case scenario under a business-a-usual approach and the transformational change that will be required to create real business value while fostering a sustainable economy.

The consortium has begun to develop new approaches that contain the seeds of truly transformational sustainability for business. Five new ways of thinking about innovation for sustainability and business results characterize their True North approach.

1. Travel light: Decoupling growth from natural resource use

Businesses on the path to True North sustainability are rethinking their business models as closed loop systems that eliminate waste from the value chain. Although few if any large players have yet turned their entire business models into such closed loops, some are implementing technological innovations that conserve resources and significantly reduce waste.

Take Hycrete, a division of New Jersey-based Broadview Technologies, whose concrete products contain compounds that render them waterproof and thus significantly less susceptible to corrosion—an innovation that promises to extend the lifespan of our buildings. Or Minnesota-headquartered Ecolab, whose food processing solutions, cleaning products and laundry equipment employ sophisticated chemistry and advanced software applications to help its customers consume considerably less water and energy.

In China, similarly, textiles maker Esquel Group, in partnership with Danish biotech innovator Novozymes, is using enzymes found in nature to achieve dramatic reductions in water use and CO2 emissions. Changzhou-based Trina Solar has become a leading global supplier of affordable solar panels for both residential and business use thanks to a vertically integrated business model that not only keeps costs down but also uses fewer resources.

Other pioneering players are reimagining innovation as a cradle-to-cradle concept, a means of shifting from a product-based to a service-based operating model that draws the consumer into a direct relationship with the company in a joint effort to drive sustainability.

New Hampshire-based outdoor-clothing specialist Timberland, for example, is “designing for disassembly.” Buyers of its Earthkeepers boots—the soles of which are made from recycled tires and virgin rubber—can return them to Timberland at the end of the product’s life, and the company will recycle them so that most of their parts can be used for new shoes.

California-based Patagonia, in the same industry, has gone a step further. The company’s counterintuitive Common Threads Initiative encourages shoppers to buy fewer of its famously durable and high-quality products—a revolutionary challenge to today’s consumption-driven growth paradigm. Along with offering to repair Patagonia clothing that needs it, the company encourages its customers to reuse or resell garments they no longer wear, either by donating them to charity or selling them via Patagonia’s partnership with eBay to other fans of the company’s brand. If the garments are worn out, Patagonia will take them back and recycle them.

2. All hands on deck: Engaging a broad spectrum of participants in collaborative initiatives

True North sustainability requires partnerships—and not just with consumers. In order to support changes transformational enough to qualify for what we call cross-sector convergence—where development and business interests merge, both horizontally and vertically—partnerships need to straddle traditional boundaries right across the business value chain.

That spells significant upheaval for ownership and governance structures—not to mention a fine balance between collaboration and competition. Even so, the notion of teamwork is clearly catching on. Our CEO study with the UN found that from 2007 to 2010, the number of companies engaging in multi-stakeholder partnerships around sustainable development rose by nearly 50 percent. And 78 percent of the CEOs surveyed affirmed their commitment to such partnerships. Our own experience with companies through both our Sustainability Services business and our not-for-profit arm, Accenture Development Partnerships, has shown this to be the case.

Consider, for example, the UK retailer Marks & Spencer’s “schwopping” initiative, which invites consumers to bring used clothing with them when they buy something new. The company works with the charity Oxfam to resell, reuse or recycle the old clothes. Recycling can radically reduce the cost of manufacturing new merchandise by reducing input costs.

Leading companies are asking consumers what they most value from sustainable products and services.

Or witness such cooperative ventures as the Forest Stewardship Council, which is headquartered in Bonn, Germany, or the Marine Stewardship Council, which is based in London—collaborations between industry and NGOs designed to conserve precious (and increasingly scarce) natural resources.
Leading companies, similarly, are developing hybrid business models with inclusivity at their core. In partnership with retailers, food service providers and distributors right across its value chain, New York-based AeroFarms, for instance, delivers pesticide-free food that has been produced in an energy-efficient way to six urban locations worldwide.
In Germany, T-Systems—a Deutsche Telekom subsidiary specializing in information and communications technology—has partnered with the city of Friedrichshafen and the Swiss engineering firm ABB to share the considerable costs of testing and implementing new, greener IT technologies—and, at the same time, position itself at a pivotal point in the renewable and smart-grid value chain.

3. Get your bearings: Resetting and redefining relationships with stakeholders

Pleasing stakeholders—especially investors—while striving to deliver sustainable outcomes that may take years to materialize can challenge the short-term mindset typical of many companies. But those on the path to True North sustainability are meeting this challenge by coming up with new definitions of value.

Leading companies are asking consumers what they most value from sustainable products and services, for example. As a result, they often unearth the new aspirations and emotional connections that will drive demand for products and services in the same way that attributes like price, availability and quality traditionally do.

With the help of such innovative sustainable lifestyle platforms as Positive Luxury, which aggregates information about environmentally and socially sound high-end products and services and provides its own, trusted “seal of approval,” concerned consumers can already make more informed purchasing choices. Carrotmob, meanwhile, enables groups of sustainability activists to support businesses that agree to make improvements they care about. Case in point: California-based Thanksgiving Coffee Company’s customer pledge to become the first organic coffee company to transport its beans in wind-powered vessels.

Some pioneers are actually measuring value and impact differently. In 2011, for example, Puma, the sporting goods maker, became the first company to report a full environmental P&L, allocating a financial value to the impact of its activities across a range of environmental and social outcomes.

In India, meanwhile, the Tata group is taking the needs of low-income consumers as its starting point for True North—and working backward. The company strips its products down to their bare essentials, and rethinks entire production processes and business models, through a process dubbed frugal innovation. Tata Consultancy Services and Tata Chemicals, for example, have developed an affordable, portable, low-tech water filter that uses rice husk ash—rice husks are a major waste product in India—to purify water, a significant benefit in a country where many people die every year as a result of drinking contaminated water.

Transformational change requires transformational scale. That, in turn, demands the cooperation of policy makers to drive swift decision making and verifiable impact. From our discussions, it is clear that True North leaders are not blindly against regulation—particularly when measures are designed with an informed stakeholder approach and they help to create a level playing field for competition and innovation.

Like all large-scale collective action initiatives, these will, of course, take time to develop. In the meantime, however, by successfully managing convergent interests and aspirations, a few such projects are making some headway.

The Extractive Industries Transparency Initiative, for example, brings together governments, citizens, oil and gas and mining companies, and their investors to address the problem of poor governance preventing the proceeds of natural resource extraction from benefiting local populations. By asking companies to disclose payments and governments to disclose receipts, it sends a clear signal that the initiative’s signatories (37 countries and more than 70 companies) are committed to accountability and good governance.

Similarly, the Sustainable Apparel Coalition commits more than 60 leading apparel and footwear brands, retailers, suppliers, nonprofits and NGOs to improve water use and quality; minimize energy consumption, emissions and waste; and achieve full transparency around the social and ethical impact of industry operations.

Meanwhile, in southern Holland, the Dow Chemical Company has collaborated with the Dutch government and local and regional water companies and suppliers to reuse more than 2.6 million gallons of domestic wastewater daily—water previously discharged into the North Sea—in both the manufacturing plants and cooling towers of what is the company’s second-largest facility.

Reusing municipal household wastewater instead of using seawater—which would have to be desalinated—has cut energy use at the Dow facility by 65 percent, the equivalent of lowering CO2 emissions by 5,000 tons annually. In addition, the innovative process—the largest municipal wastewater reuse project ever undertaken in the chemical industry—means fewer chemicals are needed for water treatment. Although this project is relatively small, it has the potential to have significant impact if scaled.

5. Lead by example: Creating change through new leadership that goes beyond traditional corporate boundaries

True North sustainability clearly has to be a collective enterprise, not least when it comes to leadership. Companies—and, in particular, top executives—need to find ways of leading from the bottom as well as from the top, drawing in all of their stakeholders. This requires new organizational and individual capabilities; new knowledge, skills and attitudes to drive innovation; and engagement that benefits sustainability and delivers real business results.

Two cases in point: The consumer goods giant Unilever, led by CEO Paul Polman, is asking consumers, employees and suppliers to help lead a 10-year effort to double the size of Unilever’s business while halving its environmental impact. For its part, Natura, a Brazilian maker of organic skin- and hair-care products, has employed more than 1 million sales agents in a remarkable network of sustainable product development and delivery. These examples demonstrate that pioneers at both ends of the size spectrum are engaging stakeholders so successfully in their sustainability efforts that they are starting to transform the very notion of industry and business leadership.

Conclusion

It’s important to recognize that these innovators are still taking only small steps in the right direction. Others are long on strategy but short on execution. All still have a long way to go before they can boast waste-free business models, or value chains so sustainable that neither the production nor consumption of their products contributes to further destruction of the global ecosystem.

Nonetheless, their commitment to a coherent and detailed plan for transformational innovation in sustainability offers a compelling narrative about why change is so necessary and why it must involve everyone. Moreover, as rising resource costs cause more and more companies to rethink their operations and reconfigure their supply chains, the example set by these pioneers can serve as a blueprint for others striving to drive change at scale.

Indeed, by aligning market forces with sustainable development outcomes, pioneering business leaders are revealing real opportunities for new sources of sustainable value creation through innovation and collaboration—and showing the way to True North.

Unilever: Partners in sustainability

To say that Unilever’s Sustainable Living Plan is an ambitious program would be an understatement.

Within 10 years, Unilever aims to halve its environmental footprint, sustainably sourcing all of its agricultural raw materials and significantly improving the health and hygiene of more than 1 billion emerging-world consumers—in short, to make sustainability the business model of the Anglo-Dutch consumer goods giant—all while trying to double the size of its business.

The plan reflects CEO Paul Polman’s conviction that “we cannot choose between [economic] growth and sustainability—we must have both.” And it places Unilever firmly in the forefront of True North pioneers on sustainability.

But Unilever also recognizes that it will never accomplish its goals without the active participation of all of its stakeholders. Indeed, since the size of its environmental footprint is largely determined by what customers do with its products and how sustainably its suppliers help to produce them, Unilever invites those stakeholders to participate in its sustainable innovation initiatives.

Hence, for example, the company’s “Partner to Win” programs with suppliers, and an open-innovation portal, designed to crowd-source the ideas that will drive transformational change.

Unilever is also working to improve consumer health through the marketing of Lifebuoy soap—a key brand in developing countries. By promoting Lifebuoy’s effectiveness as a germ killer to new mothers, the company hopes to help reduce childhood mortality. Lifebuoy hand-washing campaigns, which run for a minimum of 21 days, include quizzes, posters and songs designed to encourage repetitive behavior. And since social and economic development help reduce the ignorance and poverty that can lead to unsustainable activities, this program will likely have a positive impact on sustainability.

Meanwhile, the company’s partnership, in place since 2007, between its Lipton tea brand and the Rainforest Alliance, an NGO, produces mutual benefits. By committing farmers to continuous improvements in sustainable agriculture and environmental protection, the partnership helps boost both their productivity and the prices they get for their tea. Being able to tell consumers that its tea is from sustainable suppliers has helped boost sales of the product, which rose 10 percent in Italy and Sweden. (Back to story)

Natura: Toward a sustainable value chain

Natura Cosméticos is a personal care company with sustainability at the very heart of its brand.

Indeed, at a time of mounting concern over the depletion of the Amazon rainforest’s natural resources, the Brazilian company’s exceptional reputation as a sustainable manufacturer—some 80 percent of its raw materials come from renewable native plants—has helped make Natura the country’s biggest cosmetics firm, with 2011 revenues of $3 billion.

It’s not just environmentally responsible product sourcing, however, that has made Natura so successful. The company also leverages a direct-sales approach that both empowers its employees and reinforces the trust of its consumers. Coupled with rural supplier partnerships that encourage traditional communities to protect Brazil’s biodiversity, this strategy embeds sustainability right across Natura’s value chain—and provides an outstanding example of a company on the path to True North innovation for sustainability.

Natura has trained a direct-sales force of more than 1 million “consultants” who have established enduring personal relationships with customers in Brazil, Argentina, Chile, Peru, Colombia and Mexico as well as in France—building brand awareness and sustainable behavior by drawing them into recycling, social inclusion and self-esteem-building programs. One such program helped return 235 metric tons of post-consumption packaging for recycling.

Natura’s distribution model has also helped drive value for the company, which boasts one of the industry’s lowest levels of employee turnover. Natura’s rate of product penetration has grown significantly as well. And thanks to the strength of its brand, Natura can charge a hefty premium over competitors’ comparable products, helping grow bottom-line profits significantly. (Back to story)

Author

Peter Lacy leads Accenture’s Sustainability Services in the Asia Pacific region, including Greater China, India, ASEAN, Japan, South Korea and Australasia. He is based in Shanghai. Follow Peter on Twitter

The author would like to thank Bruno Berthon, David Abood, Justin Keeble, Robert Hayward, Guanghai Li, Melissa Barrett and Oliver Benzecry from Accenture, as well as Toby Webb from Ethical Corporation and Mick Blowfield from Oxford University Smith School, for their contributions to this article.

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